‘Banks make
October 5, 2007 at 2:27 am
The Office of Fair Trading has indicated that banks could be making as much as £3.5 billion from penalty fees levied against customers who take their accounts over the authorised overdraft limits. The figure is an estimate released as part of an ongoing investigation by the OFT into the legality and fairness of charges made by banks against their customers.
Consumer groups such as Which? argue that the fees are illegal, as they go much further than covering the costs to the bank. The banks are effectively punishing their customers and using the charges to add to their margins. Eddie Weatherill, chairman of the Independent Banking Advisory Service, said, “I’d say 70% to 90% goes straight to the bottom line… to my mind this is a pure profiteering exercise.”
At some banks such charges can be as high as £30 per day. The British Banker’s Association would not confirm the figures, saying that banks were not obliged to disclose the breakdown of their earnings from charges. A spokeswoman commented: “These figures are commercially confidential, and they are not figures that the BBA has been provided with.”
However, it does seem that banks are getting the message that they will have to be more transparent about their charges. Claims made by dissatisfied customers led to banks paying out compensation of around £400 million in the first 6 months of this year. Two of the UK’s biggest banks have said they would alert people in danger of breaching their overdraft limit and incurring a charge. HSBC said they would display a message on cash machines, and Lloyds TSB said it would send a text message to warn customers.
Further still, some banks have also hinted that should they be forced to scrap or dramatically reduce these charges they may begin levying ‘maintenance fees’ on accounts. This would be an annual charge designed to cover the costs of administering the accounts, which the banks claim are currently covered by the penalty charges. One major bank hinted this charge could be as high as £300 per year for some customers. Cavendish Elithorn, a senior director at the OFT, dismissed this claim, commenting: “There’s no excuse for the £300 charge. It would raise between six and ten times the amount the penalty fees cost consumers.”
